The Denomination Effect

To a rational decision-maker, the possession of $20 translates exactly to the ability to buy $20 worth of goods. The form of the $20 should not matter—whether it is one $20 bill, two $10s, four $5s, twenty $1s, or any configuration of change, the purchasing power is the same. However, humans are rarely perfectly rational, and this case is no exception. In the event that a person is given $20, that person is more likely to spend it if it is given in smaller denominations (for example, $1 bills or change) than if it is given in larger denominations (especially Continue reading The Denomination Effect